1031 Exchange Calculator
See how much capital gains tax and depreciation recapture a 1031 exchange defers when you swap investment properties.
Want to understand the concept, not just the number? Read The Real Estate Tax Guide and more below.
How it's calculated
A 1031 exchange, named for the tax code section, lets a real estate investor sell one investment property and roll the proceeds into another without paying tax on the gain right away. The tax is deferred, not erased, but deferral is powerful, since the money that would have gone to tax keeps working in the next property.
The tax you defer comes in two parts. First, depreciation recapture. All the depreciation you deducted over the years is recaptured at sale and taxed at up to 25 percent. Second, the capital gains tax on the rest of the gain. Take the default. A property with a 250,000 dollar gain, of which 90,000 came from depreciation, owes about 22,500 dollars of recapture tax plus about 26,280 dollars of capital gains tax and net investment income tax, for roughly 48,780 dollars deferred by exchanging instead of selling.
The rules are strict. You have 45 days to identify a replacement property and 180 days to close, the new property must be like-kind and of equal or greater value, and a qualified intermediary must hold the proceeds so you never touch them. Done right, investors chain exchanges for decades, deferring tax the whole way, and heirs can receive the property with a stepped-up basis that wipes the deferred tax out entirely. Use this to size what an exchange saves you now, then work with a qualified intermediary to execute it.
Assumptions
- A 1031 exchange defers the tax you would owe on a sale. The deferred amount is the depreciation recapture at 25 percent plus the long-term capital gains tax on the rest of the gain.
- Assumes a fully qualifying like-kind exchange with no boot received. State tax is not included, and the deferred tax is eventually owed unless you exchange again or step up the basis at death.
Last updated: 2026-08-08 · Tax year 2026
These assumptions follow our general methodology.
Frequently asked questions
What is a 1031 exchange?
It is a tax-deferred swap of one investment property for another like-kind property. You do not pay capital gains tax or depreciation recapture at the sale, as long as you follow the rules and reinvest the proceeds into a qualifying replacement property.
What are the 1031 exchange deadlines?
You have 45 days from the sale to identify a replacement property in writing, and 180 days to close on it. Both clocks start at the sale and run at the same time. Missing either deadline disqualifies the exchange and triggers the tax.
Is the tax gone forever?
No, it is deferred. You owe it when you eventually sell without exchanging again. But investors can chain exchanges indefinitely, and if you hold until death, your heirs get a stepped-up basis that can erase the deferred tax, which is why it is so powerful.
What is depreciation recapture?
The depreciation you deducted over the years lowered your basis, and at sale that amount is recaptured and taxed at up to 25 percent, higher than the capital gains rate. A 1031 exchange defers this along with the capital gains tax.